05 February 2010

Is the Remodeling Slump Over?

Home remodelers that have been hammered by the recession can look forward to better times in 2010.

Forecasters say the home improvement and fix-up business should pick up this year after a 25 percent slide in activity since 2007.

"The downturn appeared to stabilize in the second half of 2009," Kermit Baker of the Harvard University Joint Center for Housing Studies told builders and remodelers at the National Association of Home Builders' annual meeting last week in Las Vegas.

"We are starting to see some positives in where the market might be headed for handyman services and home remodeling."

The Harvard researchers said nationwide remodeling expenditures are likely to rise about 6 percent in the coming quarters.

Baker said the cutbacks in home improvement and repair activity during the recession were substantial but were less than half what the homebuilding business experienced.

"If you are a remodeler, times have been tough. But it could be worse – you could be a homebuilder," he said. "In this economic environment, households were spending more on home improvements like kitchen remodeling projects last year than they did on the purchase of new homes."

North Texas outlook

The outlook for increased home remodeling is good news for North Texas builders, some of whom have diversified during the downturn.

"Quite a few of our builders have expanded into remodeling," said Bob Morris, executive vice president of the Home Builders Association of Greater Dallas. "Some of our more inventive small custom builders have been doing remodeling.

"There is still work out there. It's a viable market because the economy here wasn't hit nearly as hard."

Even in Dallas-Fort Worth, some homeowners have put sunrooms and other fancy fix-up projects on hold for the last year or so.

"If you think the prices of homes are going down, it makes it hard to argue that outdoor decks or bath remodels will hold their value," said Paul Emrath, a researcher for the builders' association. "People have less equity in their properties to finance remodeling.

"Even if you don't have problems there, sometimes lenders are more reluctant than they have been in the past to finance remodeling or a home addition."

Smaller projects

Homeowners in the market for a redo are taking a more measured approach. The days of over-the-top remodeling and double-size additions are mostly gone, analysts say.

"Of those that are planning to spend money, 52 percent are doing needed repairs or maintenance, as opposed to large-scale home remodeling projects." said Eliot Nusbaum of Better Homes and Gardens, which commissioned a new housing study. "The focus is on smaller projects right now like painting a room or replacing or adding flooring.

"What we are seeing in remodeling as well as new construction is practical considerations."

Energy-conserving or environmentally friendly upgrades are still on many homeowners' must-have lists.

"The focus for future projects really seems to be about saving money," Nusbaum said.

Harvard University research points to the same frugality, Baker said.

"We have seen a pronounced shift over to replacement projects in the last two years," such as energy-efficient windows or heating and cooling systems, he said. "But we are now seeing a little more life in discretionary projects – kitchen and bathroom remodeling."

The majority of fix-it fans are doing the upgrades out of their pockets, Baker said.

"This market is heavily dominated by cash financing," he said. "Households either don't want to take out loans because they are nervous about economic conditions or they can't get loans."